A shell bank is a

financial institution Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...

that does not have a physical presence in any

country A country is a distinct part of the world, such as a state, nation, or other political entity. It may be a sovereign state or make up one part of a larger state. For example, the country of Japan is an independent, sovereign state, while the ...

. In order to prevent

money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions ...

, Subtitle A of the

USA PATRIOT Act The USA PATRIOT Act (commonly known as the Patriot Act) was a landmark Act of Congress, Act of the United States Congress, signed into law by President of the United States, President George W. Bush. The formal name of the statute is the Uniti ...

specifically prohibits such institutions, with the exception of shell banks that are affiliate (under the control) of a bank that has a physical presence in the

U.S. The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...

or if the foreign shell bank is subject to supervision by a banking authority in the non-U.S. country regulating the affiliated depository institution,

credit union A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit organization, nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including depo ...

, or foreign bank.

Provisions

The USA PATRIOT Act includes specific provisions designed to limit the use of

correspondent account A correspondent account is an account (often called a nostro or vostro account) established by a banking institution to receive deposits from, make payments on behalf of, or handle other financial transactions for another financial institution. Cor ...

s for money laundering activity. These provisions are contained in sections 312, 313 and 319(b) and involve limitations on shell bank relationships as well as enhanced due diligence and record keeping requirements.

Implementation

On 2002-11-28, final regulations (31 CFR 103.177 and 103.185) implementing section 313 and 319(b) of the US Patriot Act became effective. The regulations implement provisions of the BSA (

Bank Secrecy Act The Bank Secrecy Act of 1970 (BSA), also known as the Currency and Foreign Transactions Reporting Act, is a U.S. law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laund ...

) that relate to foreign corresponded accounts.

Notes

Banking terms Patriot Act {{Bank-stub